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Hawkish Fed and growth concerns rattle European markets

Fed chairman Jerome Powell

It’s been a disappointing end to the week for markets in Europe, after Fed chair Jay Powell signalled that the Federal Reserve could well go much harder, and a lot quicker when the central bank pulls the trigger on the first of what might be several 50bps rate hikes, starting next month.


Financials appear to be taking the biggest hit, after a narrowing of yield differentials, prompted concern about the prospect of a policy mistake by central banks, and a possible recession by the end of the year. This has manifested itself in weakness in the likes of Schroders, Abrdn and Hargreaves Lansdown, as well as HSBC, and Barclays ahead of the start of UK bank Q1 results, which are due out next week.

Fears about an economic slowdown are an easy conclusion to draw, especially when you look at today’s disappointing UK retail sales numbers for March, and consumer confidence in April falling to its lowest levels since July 2008.

B&M European Retail is the largest faller on the announcement that its CEO Simon Arora will be retiring in 12 months’ time. Even without that it’s still been a weak session for the sector as a whole after retail sales in March plunged by 1.4%, which has translated into weakness in the likes of Kingfisher, Next and Marks and Spencer.

Today’s retail sales numbers are a wake-up call, if any were needed, that consumer spending could be weak for some time to come, as households prioritise food and energy over non-essential spending, with this week’s fall in Netflix subscriber numbers revealing an interesting trend that is likely to get worse. Quite simply, food and energy are people’s priorities now, not watching “Stranger Things”  


US markets, having finished sharply lower yesterday on Powell’s comments on rate hikes, have continued where they left off, amidst rising caution about what next week could bring as investors gear up for a big week of tech earnings.

Next week we get the holy trinity of tech with the release of Microsoft, Apple, Amazon, Alphabet and Meta numbers, against a backdrop of a slowdown in Asia and a squeeze on consumer discretionary as the fallout from Netflix’s surprise miss continues to impact on the broader appetite for risk.   

As we look ahead to next week, last night’s Snap numbers could well be the canary in the coalmine for Meta’s numbers, after the social media company reported a challenging Q1, that missed on sales and profits, and also posted weak guidance. The company posted a loss of 2c a share, while average revenue per user came in short at $3.2c. Q2 revenue is expected to rise by an upper limit of 25%, well below expectations of 28%.

American Express shares look set to bring the curtain down on US bank earnings by reporting better than expected Q1 profits and revenue of $2.73c a share and $11.74bn respectively. The bank did see a 34% rise in expenses, while also setting a full year EPS forecast that came in light, with an upper boundary at $9.65c a share.

On the retail front Gap cut its sales growth outlook for Q1, citing difficult trading at its Old Navy operations, with the shares trading sharply lower in early trade.


The US dollar is among the best performers today after Powell’s comments last night. The pound is one of the worst performers today, sliding to its lowest levels since November 2020 after UK retail sales plunged by -1.4% in March, hurt by declining consumer confidence, as well as a sharp fall in fuel sales as the rising cost of living prompted consumers to pare back non-essential spending.

Consumers will also have had one eye on the upcoming surge in energy bills which has now hit their wallets this month, as well as the fiscal own goal of the chancellor Rishi Sunak in going through with his National Insurance tax hikes. It is true that he has taken some measures to alleviate the hit to people’s finances but it is very much the fiscal equivalent of tinkering around the edges, and points to a very challenging few months for consumers, exacerbated by tax rises which could and should have been postponed.

Today’s numbers also look set to play into the calculus around next month’s Bank of England rate decision with the prospect that we could get a split between those members who may want to go down the 50bps rate hike route and those who would prefer to hike by 25bps. With consumer confidence levels back at levels last seen in July 2008, the likelihood of further declines in consumer spending looks quite high, even as the warmer weather helps to reduce energy usage as we head into the summer.  


We appear to be starting to see some signs of demand destruction when it comes to energy prices, and this appears to be limiting the upside in crude oil prices in the short term, while other commodity prices are also under pressure on growth slowdown concerns.

China oil demand has fallen at the fastest rate since the Wuhan lockdown in February 2020 due to the various Covid shutdowns that has brought economic activity in some of the major cities to a virtual halt. Although we hit three-week highs early on this week, we have slipped back and appear to be struggling at levels above $110 a barrel.

Copper prices are also trading at one month lows for similar reasons, with the strength of the US dollar is also acting as a drag

Gold prices fell agonisingly short of $2,000 an ounce earlier this week, before slipping back, and could well finish the week lower, as another week of rising yields and a firmer US dollar limit the upside potential.  


Netflix remained an active trade during Thursday’s session and despite the underlying stock losing a relatively modest 3.5% across the day, volatility was once again sharply elevated with a daily figure of 806% being recorded against a monthly print of 249%. Again, that had a knock-on effect on price action for CMC’s proprietary basket of streaming shares which saw daily vol of 154% against a monthly print of 67%, again modestly higher than the numbers seen on Wednesday.

In cryptos, TRON spiked higher briefly yesterday before giving back around half of its gains. There doesn’t seem to be much in the way of fundamentals behind the move but daily vol advanced to 140% against 63% on the month.

US Natural Gas prices hit 13-year highs last week and whilst some of those gains have been given back in recent days, the underlying price attempted something of a renewed rally during Thursday’s session. Trading in a range of just above 5%, daily vol reached 90% against 63% on the month.

Rounding off with fiat currencies, it’s the Kiwi Dollar which is the day’s stand out. Despite upbeat inflation data, there’s concern that the country’s reserve bank will respond too aggressively in terms of rate hikes, hitting economic growth as a result. The currency is finding itself under pressure as a result and posted daily vol of 12.24% against 9.74% on the month.

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